Director Jonny Stevenson on what’s next for keyworker housing in London

Keyworker housing in London is generally considered to be ‘intermediate’ housing rather than social housing. This is rarely funded by the Mayor and more likely secured by a s106 agreement as part of wider development.

Instead of competing with traditional affordable housing tenures, the idea is that Keyworker accommodation can be prioritised on certain sites near a relevant institution, i.e. a hospital, whilst also having regard to local need and site specific circumstances.

There is a relative shortage of purpose built key worker accommodation developments due to complexity in funding arrangements. The Naylor Review suggested that land vacated by NHS could be used for affordable housing for NHS staff. However, this may contradict the traditional approach of demonstrating the achievement of best consideration in the sale or alternative use of surplus land.

In terms of justifying demand for keyworker accommodation, evidence of need is required, which requires collaboration from the Trusts. This may include data such as unfilled vacancies or poor staff retention where the lack of affordable accommodation close to where staff worked. However, this is in itself complex as there is a question over whether household income should be assessed rather than the relevant keyworker salary, and how often should this be reviewed in order to ensure the limited housing stock is still accessible to those most in need of it.

Another factor is that the specific requirements for housing typologies are different now for keyworkers than in the past. Historic schemes in cities were more likely to provide clusters, but now the need is much more diverse, including older households and families.

Another thorny issue is how these schemes are funded, even when they are provided on public sector ‘free’ or subsidised land. There is neither the expertise nor the capital to build homes for NHS keyworkers, for example, within the NHS. Therefore, it is inevitable that for such schemes to be developed, private sector partnerships and collaborations are likely to be required. The finished units will be let at below market rents, which means that the gross rental revenue from such schemes will be lower than private build to rent schemes, but the management costs are likely to be similar. Whilst some of the reduced Gross Development Value could be overcome by introducing a government backed yield profile, there are some problems with this approach too. Firstly, government back income is less attractive now than it was in the recent past due to Bank of England interest rate rises and the increasing gilt rates. Also, the ability of public sector bodies such as the NHS to use their covenant to attract investment in such schemes is curtailed by Capital Departmental Expenditure Limits (CDEL) which restrict the amount of financial commitments i.e leases that can be made by public sector bodies are now required to be accounted for, in full, on their respective balance sheets (with revenue commitment being treated in a similar way to committed capital). The effect is that NHS bodies entering into new leases is made much more difficult- especially in London, where budgets are already stretched by large scale hospital developments.

The sector is continuing to try to innovate to find ways to develop a pipeline of keyworker housing without infringing accountancy rules. One possible way might be through nominations agreements, similar to PBSA, but this would inevitably be less attractive (and less certain) to institutional investors seeking robust long term public sector backed real returns.